British Pound Depreciates Against Dollar as U.K. Business Confidence Falls
The pound depreciated after a report showed business confidence in the U.K. slid to the weakest in two years, bolstering the case for maintaining interest rates at a record low.
The British currency fell against 13 of its 16 most-traded pears and touched its lowest level versus the dollar in eight weeks. Data from the Office for National Statistics tomorrow is forecast to confirm the U.K. economy shrank more than initially estimated in the fourth quarter. Bank of England policy maker Adam Posen warned inflation will drop to 1.5 percent in 2012 as the economy weakens.
“Confidence in pretty much all measures has been fairly pessimistic over the course of the last few weeks,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “It’s a bit of a game of snakes and ladders as far as sterling is concerned. We’ve been climbing up the ladder getting north of $1.63, and I think we’re now we’re on our way back down the snake again.”
The pound slipped less than 0.1 percent to $1.6035 at 4:25 p.m. in London after earlier touching $1.5937, the weakest since Jan. 31. The U.K. currency weakened 0.2 percent to 87.97 pence per euro and gained 0.3 percent to 130.872 yen.
Stretch said the pound may slide to $1.5825.
A gauge of sentiment, which aims to predict economic developments in the U.K. four months in advance, fell to 1 from 3 in February, London-based Lloyds Banking Group Plc said today. The share of companies that were less optimistic about economic prospects increased to 44 percent from 36 percent in the previous month.
Posen’s Inflation Forecast
Gross domestic product fell 0.6 percent from the previous three months, compared with an initial estimate for a 0.5 percent drop, according to the median forecast of 24 economists surveyed by Bloomberg before the report tomorrow.
The Bank of England’sPosen said the U.K. inflation rate will slide to 1.5 percent by the middle of 2012 as consumer spending declines amid government austerity and a weak economy, the Guardian reported yesterday, citing an interview.
Posen maintained his call for an expansion of stimulus with further bond purchases at the March 10 meeting of the Monetary Policy Committee. Consumer price inflation rose to 4.4 percent in February, more than twice the central bank’s target.
“People were assuming that with CPI continuing to squeeze up aggressively, the bank would be forced to react to that,” Stretch said. “Now we’re seeing a realization that whilst there is an inflation spike, maybe it’s not going to be reflected in terms of an immediate tightening process.”
Other U.K. central bank policy makers scheduled to speak this week include Martin Weale, Paul Fisher and David Miles.
A measure of M4 money-supply growth that the central bank uses to assess the effectiveness of its asset purchases is published tomorrow. Data is also expected to show February mortgage approvals rose for a second month and the U.K. current account deficit widened in the fourth quarter.
Gilts Fall
The U.K. currency has gained 0.3 percent this year in a gauge of 10 developed-market currencies, lagging the euro’s 3.4 percent advance. The dollar has declined 2.5 percent.
Short-sterling futures slipped, pushing the implied yield on the contract maturing in December up two basis points to 1.42, as traders boosted bets on an increase in U.K. rates.
U.K. government bonds were little changed with the yield on the benchmark 10-year gilt at 3.61 percent.
U.K. government debt lost investors 0.6 percent this year, compared with a 2 percent loss for German bonds a zero return for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
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